Lack of funds dooms nonprofit, which ends publication Sunday after little more than 2 years

A bold experiment aimed at supplementing or supplanting daily newspapers, the Chicago News Cooperative ended up writing its own obituary, ending publication Sunday, a little more than two years after it started.

Despite a high-profile partnership with the New York Times and a roster of seasoned local newspaper executives and reporters, the nonprofit lived up to its designation all too well, running out of money and time in its bid to create a new model for public interest journalism.

The CNC has told its staff to seek other employment as it winds down operations by early March, said James O'Shea, the organization's editor, CEO and founder.

"If I decide to go forward, it's going to be in a different kind of an organization," O'Shea said. "The CNC, for all practical purposes, will cease to exist. It's over."

A cautionary tale for the nascent nonprofit news industry, the CNC's demise is a mix of big ideas and small details. Among the setbacks were dashed plans to supply content to the Chicago Sun-Times and a delay in filing for its tax-exempt status, both of which contributed to an outcome that few outside the organization saw coming.

A former managing editor of the Chicago Tribune and editor of the Los Angeles Times, both owned by Tribune Co., O'Shea was brought into the project in May 2009 while on a fellowship at Harvard University. That summer he began exploring ways to fund and run the nonprofit, including talking with the New York Times about a symbiotic partnership.

With a deal with the New York Times to produce two pages on Friday and Sunday for a Chicago section in the paper, and an initial $500,000 grant from the Chicago-based MacArthur Foundation, the CNC launched in November 2009, perhaps too soon for its own good.

"If I were doing it again I would wait," O'Shea said. "But it wasn't like the New York Times put a gun to our head. The New York Times relationship conferred upon us almost instant credibility."

With an annual budget of $1.2 million to $1.5 million, the CNC employed about 7 full-time staffers, including O'Shea. Two full-time reporters did the heavy lifting, helped by a dozen or so part-time and freelance writers who supplied stories to both the CNC website and New York Times.

Focused on news gathering, the CNC probably didn't pay enough attention to administrative functions and fundraising. The CNC raised about $3.5 million over two-plus years, with $1 million from the MacArthur Foundation.

"If I had it to do over again, I would raise more money upfront and not try to do it as we go along," O'Shea said.

By contrast, the Texas Tribune, which launched the same month as the CNC and also publishes twice weekly content for the Times, started with an initial gift of $1 million and had almost $4 million in hand by the end of 2009. The Austin-based nonprofit has raised about $11.8 million to date, a figure expected to hit $15 million by the end of this year. That funds an annual budget of about $4.3 million, with a staff of 33, including 16 full-time reporters, said Evan Smith, Texas Tribune CEO and editor.

Hampering its fundraising efforts, the CNC waited to file its federal 501(c)(3) nonprofit application until September 2010, missing a window of opportunity and getting stuck in an IRS backlog of news organizations seeking nonprofit status. Shea blamed lawyers working pro bono for the delay.

The Texas Tribune filed its application in spring 2009 and achieved the designation several months before it began publishing.

"It certainly gave us the ability to apply for foundation funding, to ask of individuals and corporations gifts of support that were then tax deductible," Smith said.

Though foundations can give money to nonprofits waiting for federal tax exempt status through a fiscal agent — the CNC used Chicago public television station WTTW in that role — it limits the pool of potential donors.

"It's a huge problem," said Kevin Davis, executive director of the Investigative News Network, a California-based consortium of 60 nonprofit news organizations founded in 2009. "Being nonprofit is not a business model, it's a tax status. The reason you become a nonprofit is because you wish to receive philanthropic and public support for your cause."

O'Shea had a five-year goal to wean the CNC off philanthropic dependence by selling its editorial content to other news organizations. There were discussions with several potential partners, but O'Shea said he had his sights on the Chicago Sun-Times.

Sources say that O'Shea was a catalyst in encouraging CNC board members Michael Ferro and John Canning to purchase the Sun-Times in December, but the synergies didn't materialize.

"That just never worked," O'Shea said. "A lot of it was timing. These guys just got in, they just took over, and they're trying to figure out where they want to go. We needed the money fast, and they weren't ready to commit that quickly."